Saturday, March 6, 2010

The common feedback from investors is that startups must expect a continued squeeze on new funding during the economic recovery. I subscribe to the "glass is half full" wisdom which says that startups with the right stuff can win big in these tough times.

The big question is, "What is the right stuff?" Here are some key elements that will always get their attention:

Play where you are the expert. We all can site exceptions to this rule, but if you have no background or credentials in medicine, now is not the time to ask for money to help you cure the common cold. But if you have deep domain knowledge and business experience in engine technology, you will likely find many people who will buy or invest in your new alternative fuel startup.

Face the issues head-on. You must demonstrate a spending strategy and a marketing budget that recognizes economic realities. Highlight in your investor presentation, and your business plan, that you have tuned your plan to account for today's realities.

You should address the obvious questions on investors minds before you are asked, like, "What are you doing differently because of the spending crunch?", and "Why should we believe that you can make money when all around you people are barely hanging on?" List examples of how you are "walking the talk", like not moving to that expensive office building this year.

Be adaptable. Even in the best of times, startups need to constantly adapt. Be ready to proudly admit that you have improved your strategy as you learned from technology issues, customer input, and economic changes. Don’t turn off a potential investor by insisting on charging straight ahead, despite evidence that the world has turned a corner.

Be in the right sector. Energy, green, and biotech are good bets. Everyone wants alternative energy sources, to stay healthy and save the environment. If you have "the next big thing" in one of these categories, you can get money and you can get customers.

Get creative on funding. The best funding alternative is bootstrapping, or no outside funding. Serial entrepreneurs like Rich Christiansen set themselves a “tiny” budget like $5,000, and parlayed it into success a dozen times. Variations on this theme include bartering your skills for office space, government grants, and getting advances from potential customers.

Be a leader. The best thing about being an entrepreneur is that you are tackling challenges that no one else has won. Adopting a cautious or negative approach probably won't get you there first, and certainly isn't much fun. Everyone likes to follow a leader, and investors and customers like confidence. Be one of the first to jump on the upswing, so you can ride the wave rather than be swamped by it.

Stay healthy physically, mentally, and emotionally. This is important because you can’t really compete if you’re not physically healthy. Good health will counter stress and help you think more clearly. Your emotionally health is important because you won’t be so easily blinded by your emotions, and you will be happy and positive. Keep a positive attitude about yourself and life in general.

As the CTO of IBM's systems and technology group recently said "You're not going to save your way to greatness." But you can innovate your way there. Economic hard times are historically the times for major innovation. So stop feeling sorry for yourself and start looking for the right stuff.